Articles

Share Wealth with Younger Workers

Wednesday, December 1, 1999
by Marc J. Lane

Reprint permission from the December, 1999 issue of Crain's Small Business.


Coil Counts Ford & Cheney Advertising Inc. successfully competes with the biggest ad agencies precisely because it isn't one of them. Now, it faces a critical issue: how to grow the brand without dulling the personal edge that sets it apart.

First, I would ensure the viability of the venture should any of the principals leave. Kirk Borland doesn't view that possibility as likely. Yet since all five partners are in their late 40s and early 50s, burnout remains a painful fact of life in their industry, and health issues could always arise.

A buy-sell agreement would guarantee that, if any owner died, became disabled or retired, the others or their corporation would buy him out at a predetermined price or under an agreed-upon formula. The departing partner or his family would be paid fair value for his shares, and those who run the company wouldn't see it die with one of its founders.

Next, I would start sharing the wealth with young, hungry employees who will help CCF&C grow. Selected middle managers can earn shares that vest, or become theirs, over a period of years. The company can deduct the value of those shares and realize a tax savings as it gives this "next generation" of owners a stake in the success it helps build.

Key employees will know that CCF&C is their company. They'll devote their energy to it with the same enthusiasm the five shareholders demonstrate every day. And, in a highly competitive environment, CCF&C will also be able to offer equity ownership to its new talent.

What's more, the founding owners will have created an exit strategy. Once the younger managers sign on to the buy-sell agreement, they will become the natural market for corporate shares.

The loyalty of CCF&C's key employees will be guaranteed by economic self-interest; fair, incentive-based employment pacts; and the buy-sell agreement. Over time, the firm can grow into an "institution" with the stature to position itself for challenges ahead.

Marc J. Lane ([email protected]) is a Chicago lawyer and financial planner and an adjunct professor of law at Northwestern University School of Law.

 


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Copyright © 1999 by Crain Communications Inc.

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